For most of us, getting organized to complete our annual Income Tax Return is a chore. We would prefer to expend the minimum amount of effort to get the job done. Luckily, many records such as income figures are provided to us by others (W-2’s, 1099’s etc). In addition, minimizing your taxes due often involves documenting charitable gifts for itemized deductions. Maximizing the benefits from those charitable gifts does require a bit more work on your part. While you may be aware that you need to keep records to deduct charitable gifts you make, you may not realize that it is fairly common not to receive IRS-compliant documentation from nonprofit organizations. Therefore, it is up to you to know the rules yourself and confirm you receive the correct documents. Below is an outline of what to keep when you make Charitable Gifts (by donating Cash, Check, via Credit Card, etc): For Gifts under $250: You need to have a record showing the name of the organization, date and amount of the contribution. One or the other of these will work:
- Bank Record such as cancelled check, bank or credit card statement, or
- A receipt from the organization
This means gifts such as putting cash in the Salvation Army Red Bucket are not deductible.
For Gifts of $250 or more: In addition to the record showing the name of the organization, date and amount of the contribution described above, you also need a written acknowledgement from the charity that meets all three of the following requirements:
- The acknowledgement includes the amount of the contribution. and
- It states if any goods or services were received by you in exchange for the gift. (Note: this is required even if no goods or services were received; this is the most commonly missed item we see on charity acknowledgement letters.) and
- The written acknowledgement needs to be received before you file your tax return.
There are documented court cases in which the IRS disallowed deductions made for charitable gifts that would have qualified as deductions, but proper documentation was not provided to the taxpayer by the charitable organization. If you are missing any of the information above, you should reach out to the organization. They may not even be aware of the reporting requirements themselves, especially for a small, volunteer run charity.
For non-cash gifts such as donations of personal items or household goods, shares of investment securities, etc, there are additional recordkeeping requirements to follow. Please be sure to consult IRS Publication 526 or contact us to learn more.